Archive for the ‘FCPA Jurisprudence’ Category

A Comprehensive FCPA Resource

Wednesday, November 5th, 2014

The question was recently asked: ”will there ever be a classic treatise on the FCPA?”New Era

According to Webster’s, a treatise is a book, article, etc., that discusses a subject carefully and thoroughly.

With that definition in mind, I invite you to consider my new book “The Foreign Corrupt Practices Act in a New Era.”  Inside you will find:

  • A thorough telling of the story of the FCPA told largely through original voices of actual participants who shaped the pioneering law;
  • Foundational knowledge (such as DOJ and SEC policy and resolution vehicles and the realities of the global marketplace) that best enhance understanding and comprehension of specific FCPA topics;
  • A comprehensive analysis of the FCPA’s anti-bribery provisions and for each element, exception or affirmative defense discussion of all legal sources of authority (including all relevant substantive FCPA judicial decisions) as well as non-legal sources of information (including discussion of over 70 FCPA enforcement actions);
  • Discussion of other legal issues also relevant to FCPA enforcement;
  • A comprehensive analysis of the FCPA’s books and records and internal controls provisions including legal authority as well as non-legal sources of information;
  • Analysis of the typical origins of FCPA scrutiny and enforcement;
  • Discussion of FCPA settlement amounts, how they are calculated, and analysis of legal and policy issues relevant to settlement amounts;
  • Discussion of FCPA sentencing issues, how sentences are calculated, and an analysis of legal and policy issues relevant to sentencing decisions;
  • An extended discussion and analysis of an often overlooked topics, “FCPA Ripples,” and how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement;
  • An exploration of practical and provocative reasons for the general increase in FCPA enforcement during this new era including a discussion of FCPA Inc. and the business of bribery;
  • Identification and discussion of FCPA compliance best practices and benchmarking metrics; and
  • An in-depth discussion and analysis of FCPA reform designed to ensure that the FCPA is best achieving the original goals of the law and that FCPA enforcement is transparent and consistent with rule of law principles.

Whether the above topics highlighted and explored in “The FCPA in a New Era” make it a classic treatise, well, I invite you to come to your own conclusion.  At the very least, you will have to agree that the cover of the book is more inviting than a typical treatise.

While I am certainly not going to ascribe labels to my own work, I am pleased to share what others have said about “The FCPA In a New Era.”

Michael Mukasey, former U.S. Attorney General

“Professor Koehler has brought to this volume the clear-eyed perspective that has made his FCPA Professor website the most authoritative source for those seeking to understand and apply the FCPA. This is a uniquely useful book, laying out systematically the history and rationale of the FCPA, as well as its evolution into a structure governed as much by lore as by law. It will be valuable both to those who counsel international corporations, whether in connection with immediate crises or long-term strategies; and to those who contemplate what the FCPA has become, and how it can be improved.”

Professor Daniel Chow, The Ohio State University Moritz College of Law

“This is the single most comprehensive academic treatment of the Foreign Corrupt Practices available. Professor Koehler’s book will become the authoritative standard for the field. The book not only treats the history of the FCPA, but analyzes the statute’s elements in detail, discusses current cases, and makes proposals for reforms where the current law is deficient. The book is written in a clear, accessible style and I will use it often as a resource for my own scholarly work.”

 Richard Alderman, former Director of the UK Serious Fraud Office

“An excellent and thought-provoking book by a great expert. Backed up by rigorous analysis of cases, Professor Koehler constantly challenges those involved in anti-corruption work by asking the question ‘why?’ He puts forward many constructive and well-argued suggestions for improvements that need to be considered. I have learned a lot from Professor Koehler over the years and I can thoroughly recommend this book.”

Thomas Fox, FCPA Compliance and Ethics Blog and FCPA Practitioner

“The Foreign Corrupt Practices Act in a New Era” should become one of the standard texts for any FCPA compliance practitioner, law student studying the FCPA or anyone else interested in anti-bribery and anti-corruption. It should be on your FCPA library bookshelf.”

Barry Vitou, thebriberyact.com and Compliance Practitioner

“If you only read one book on the US FCPA, read this one. [...] Mike Koehler’s new book is probably the best book we’ve read about the FCPA. [...] For those wanting a pair of ‘FCPA goggles’ no book is, in our opinion, better.”

To order a hard copy of the book, see here and here; to order an e-copy of the book, see here and here.

For media coverage of the book including Q&A’s, see here from Corporate Counsel, here from Global Investigations Review, and here from Corporate Counsel Weekly.

*****

Looking for even more information and analysis of the FCPA and FCPA enforcement?

I invite you to all also consider the following year in review articles.  Granted the below articles are not found between two covers, but you will find approximately 500 pages of FCPA statistics, trends and analysis over time.

For 2013, see here.

For 2012, see here.

For 2011, see here.

For 2010, see here.

For 2009, see here.

An FCPA Enforcement Action With Many Interesting Wrinkles

Wednesday, August 27th, 2014

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

The 1998 Foreign Corrupt Practices Act enforcement action against Saybolt Inc., Saybolt North America Inc. and related individuals had many interesting wrinkles:  a unique origin; a rare FCPA trial; a fugitive still living openly in his native land; and case law in a related civil claim.

As to the unique origin, Saybolt Inc. was a U.S. company whose primary business was conducting quantitative and qualitative testing of bulk commodities, such as oil, gasoline, and other petrochemicals, as well as grains, vegetable oils and other commodities.  The Environmental Protection Agency, Criminal Investigation Division (“EPA-CID”) was investigating the company for allegedly submitting false statements to the EPA about the oxygen content of reformulated gasoline blended in accordance with the requirements of the Clean Air Act.  The investigation was initiated by reports of data falsification at Saybolt’s Massachusetts facility.

During the course of the investigation EPA-CID interviewed Steven Dunlop (the general manager for Latin American operations for Saybolt) who provided the following information.

During a trip to Panama in 1994, Dunlop was advised of new business opportunities that were being offered to Saybolt Panama through the Panamanian Ministry of Commerce and Industries.  Specifically, the DOJ’s criminal complaint alleged that Hugo Tovar (the General Director of the Hydrocarbon Directorate, a division of the Ministry of Commerce and Industries) and Audo Escudero (the Sub-Director of the Hydrocarbon Directorate), offered to Saybolt Panama an opportunity to: (1) receive a substantial reduction in Saybolt Panama’s tax payments to the government of Panama; (2) obtain lucrative new contracts from the government of Panama; and (3) secure a more permanent facility for Saybolt Panama’s operations on highly coveted land near the Panama Canal.  According to the criminal complaint, this parcel of land was coveted because Saybolt Panama “only had a tenuous legal claim on its existing facility” and as a result its operations were continually at risk.

The complaint details various communications between Dunlop and David Mead (the President and CEO of Saybolt) in which Dunlop informed Mead of a $50,000 “fee” that would be needed to accomplish the above opportunities.

The complaint details a 1995 board of directors meeting at Saybolt during which discussion concerned the “$50,000 payoff demanded by the Panamanian officials with whom Saybolt was negotiating.  According to the complaint, present at this meeting were Board members Frerik Pluimers and Philippe Schreiber as well as Mead and Saybolt’s Chief Financial Officer Robert Petoia.  According to the complaint, Dunlop received instructions from Mead that he was to “take the necessary steps to ensure that the $50,000 was paid to the Panamanian officials in order to secure the deal” and that Schreiber was to be his primary contact on all issues concerning the Panamanian transaction.

According to the complaint, “in the minutes leading up to the time he was scheduled to leave his house for the airport” to travel to Panama,” Dunlop had a telephone conversation with Schreiber who advised him “that the action [he] was about to take would constitute a violation of the FCPA.”

According to the complaint, while in Panama Dunlop “learned that the Saybolt funds needed to make” the payment had not yet been received and that Dunlop then tried to contact Mead.  According to the complaint, Mead sent Dunlop an e-mail which stated: “Per telecon undersigned and capo grande Holanda the back-up software can be supplied from the Netherlands.  As previously agreed, you to detail directly to NL attn FP.” According to the complaint, “capo grande Holanda” was a reference to Pluimers (the President of the Dutch holding company that controlled Saybolt, Inc.” and the “back-up software” was a reference to the $50,000 payment.”

The complaint alleged that the funds never arrived in Panama and that Dunlop was receiving pressure from the Panamanian officials “to make the $50,000 payment prior to the upcoming Christmas holidays.”  According to the complaint, Mead told Dunlop on a telephone call to make the $50,000 payment using funds that were in the operating account of Saybolt Panama.

According to the complaint, the $50,000 in cash was obtained by laundering a check through a local construction company and that a “sack full of currency” was handed over to Escudero at a bar in Panama City by the individual who was serving as Saybolt Panama’s liaison with Escudero.  Further, according to the complaint, “shortly after this payment was made, the Ministry of Commerce and Industries and other necessary government agencies acted favorably on Saybolt’s proposal.”

In April 1998, the DOJ filed this indictment against Mead (a citizen of the U.K. and resident of the U.S. and Pluimers (a national and resident of the Netherlands) based on the above conduct.  The indictment charged Mead and Pluimers with conspiracy to violate the FCPA’s anti-bribery provisions and the Travel Act, two substantive violations of the FCPA, and two substantive violations of the Travel Act.

According to the indictment, the purposes and objectives of the conspiracy were:

  • To obtain contracts for Saybolt de Panama and its affiliates to perform import control and inventory inspections for the Ministry of Hydrocarbons, and the Ministry of Commerce and Industries, both departments of the Government of the Republic of Panama;
  • To obtain and to expedite tax benefits for Saybolt de Panama and its affiliates from the Government of the Republic of Panama, including exemptions from import taxes on materials and equipment and reductions in annual profit taxes;
  • To obtain from an agency of the Government of the Republic of Panama a secure and commercially attractive operating location for an inspection facility in Panama; and
  • To “lock out” Saybolt’s competitors by retaining possession and control of Saybolt de Panama’s existing location in Panama.

In September 1998, the DOJ filed this superseding indictment substantially similar to the first and including the same charges.

Mead moved to strike the indictment of allegations that he violated the FCPA and for dismissal of the indictment for failure to state an offense under the Travel Act, and for a Bill of Particulars.   In a one page order, U.S. District Court Judge Ann Thompson denied the motions. Dunlop was given full immunity as was the American attorney present at the board meeting and involved in several conversations with Pluimers, Mead, and Dunlop concerning the alleged payments.

Mead argued that the FCPA only prohibited payments to assist a domestic concern in obtaining and retaining business” and he used Saybolt’s rather complex corporate structure to argue that the business sought to be obtained or retained was for a different Saybolt entity, not a domestic concern.  In his motion, Mead stated “because the government ignores the corporate legal structure and does violence to the FCPA by attempting to end-run congressional policy, the Court must justifiably refuse.”  Elsewhere, the motion stated:

“Whether the government labels foreign corporations as ‘agents of a domestic concern’ or members of an ‘unincorporated organization,’ the government still may not manipulate the Act’s broad language to end-run this congressional policy (of deliberately excluding both foreign subsidiaries and non-subsidiary foreign corporations from FCPA liability).”

The motion also argued that the indictment was devoid of any allegation that Mead acted “willfully” (i.e. with the specific intent to violate the law) because he followed the legal advice of counsel in making the alleged payments.

In response, the DOJ stated that the indictment “describes in detail how Mead – himself a U.S. resident, and also the President of one U.S. corporation (Saybolt Inc.), Executive Vice-President of a second U.S. corporation (Saybolt North America Inc.), and Chief Executive Officer of an unincorporated association (Saybolt Western Hemisphere) – and others decided to send a Saybolt Inc. employee to Panama City, Panama, to oversee the payment of a $50,000 bride, which they believed would be provided to high level government officials, in exchange for favorable treatment of Saybolt’s business interests in Panama.  The Indictment charges that Mead gave the order to go forward with the bribe and it details the contents of the e-mail message that Mead sent from his office in New Jersey to the Saybolt employee in Panama City.”

At trial, Mead argued that the Government failed to meet its burden of proof and that he acted in good faith belief that the payment to the Panamanian officials was lawful.  The relevant jury instructions stated as follows.

“If the evidence shows you that the defendant actually believed that the transaction was legal, he cannot be convicted.  Nor can he be convicted for being stupid or negligent or mistaken.  More is required than that.  But a defendant’s knowledge of a fact may be inferred from “willful blindness” to the knowledge or information indicating there was a high probability that there was something forbidden or illegal about the contemplated transaction and payment.  It is the jury’s function to determine whether or not the defendant deliberately closed his eyes to the inferences and the conclusions to be drawn from the evidence here.”

According to this docket sheet, Mead’s trial occurred in October 1998 and he was found guilty of all charges.  According to the docket, Mead was sentenced to four months imprisonment, to be followed by four months of home confinement, to be followed by three years of supervised release.  According to the docket, he was also ordered to pay a $20,000 criminal fine. After sentencing, US Attorney Donald Stern of Boston, stated: ”This sentence puts American executives on notice there will be a price to pay, far more than the monetary cost of the birbe, when they buy off foreign officials.”  For additional reading on Mead’s case, see this transcript of an in-depth CNN story about Mead that aired in 1999.

What about Pluimers?

As indicated by this docket sheet, there has been no substantive activity in the case since 1999 and Pluimers remains a fugitive – albeit living openly in his native Netherlands.  According to this 2011 New York Times article citing a Wikileaks cable, “Pluimers simply has too much influence with high-ranking Dutch officials to be handed over to U.S. authorities.”

What about Saybolt?

In August 1998, the DOJ the filed two separate criminal informations against Saybolt Inc. and its parent corporation Saybolt North American Inc. The first information charged Saybolt with conspiracy and wire fraud related to the company’s “two year conspiracy to submit false statements to the EPA about results of lab analyses. The second information charged Saybolt and Saybolt North America with conspiracy to violate the FCPA and one substantive charge of violating the FCPA.

As noted in this plea agreement, Saybolt agreed to plead guilty to all charges in the informations and agreed to pay a total fine of $4.9 million allocated as follows:  $3.4 million for the data falsification violations and $1.5 million for the FCPA violation. Saybolt also agreed to a five year term of probation.

The conduct at issue in the Saybolt and related enforcement actions also spawned a related civil malpractice action alleging erroneous legal advice by counsel regarding the above-described payments to Panamanian officials.  In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Second Circuit analyzed whether a company, in pleading guilty to FCPA anti-bribery violations, acknowledged acting with intent thus undermining its claims that the erroneous legal advice was the basis for its legal exposure.

The court stated:

“Knowledge by a defendant that it is violating the FCPA – that it is committing all the elements of an FCPA violation – is not itself an element of the FCPA crime.  Federal statutes in which the defendant’s knowledge that he or she is violating the statute is an element of the violation are rare; the FCPA is plainly not such a statute.”

The court also stated concerning “corruptly” in the FCPA:

“It signifies, in addition to the element of ‘general intent’ present in most criminal statutes, a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position.  But there is nothing in that word or anything else in the FCPA that indicates that the government must establish that the defendant in fact knew that his conduct violated the FCPA to be guilty of such a violation.”

The 193 Meanings of “Foreign Official”

Thursday, June 26th, 2014

By most measures, there are 193 countries in the world.

According to the 11th Circuit’s recent “foreign official” ruling (see here), the FCPA’s key “foreign official” element can have 193 different meanings.

As previously highlighted, the key language from the opinion is as follows.

“An ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract. [...] [W]e do not purport to list all of the factors that might prove relevant to deciding whether an entity is an instrumentality of a foreign government. For today, we provide a list of some factors that may be relevant to deciding the issue.

To decide if the government ‘controls’ an entity, courts and juries should look to the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed.

[...]

We then turn to the second element relevant to deciding if an entity is an instrumentality of a foreign government under the FCPA — deciding if the entity performs a function the government treats as its own. Courts and juries should examine whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

In sum, the key concepts according to the 11th Circuit in analyzing whether a seemingly commercial enterprise is in fact an “instrumentality” of a foreign government such that its employees are “foreign officials” are control and function.

Yet how is a business organization competing in good-faith in the global marketplace supposed to find answers to these concepts?

The 11th Circuit thinks it will be easy as the court stated:

“We think it will be relatively easy to decide what functions a government treats as its own in the present tense by resort to objective factors, like control, exclusivity, governmental authority to hire and fire, subsidization, and whether an entity finances are treated as part of the public fisc.  Both courts and businesses subject to the FCPA have readily at hand the tools to conduct that inquiry (especially because the statute contains a mechanism by which the Attorney General will render opinions on requests about what foreign entities constitute instrumentalities.”

However, is it really that easy?

I trouble to envision a general counsel or chief compliance officer of a company charged with approving expenditures of things of value in connection with a business purpose (and let’s face it, companies do this all the time in the global marketplace as to certain customers and prospective customers) ever finding answers to certain issues identified by the 11th Circuit as being relevant.

The 11th Circuit’s suggestion to the contrary is somewhat comical.  Does the 11th Circuit envision the following?

  • General Counsel / Chief Compliance Officer:  Pardon me Company A, can you tell me how your principals are hired and fired?
  • General Counsel / Chief Compliance Officer:  Excuse me Company B, but do your profits go directly into the government fisc?  A follow-up if I may – does the government subsidize your operations?  And if so, for how long?

As to the FCPA’s Opinion Procedure program, seemingly lost on the 11th Circuit is that it often takes months for a business organization to receive an answer from the DOJ.  For this reason, among others, the FCPA Opinion Procedure program has been routinely criticized.  As noted in the OECD’s 2010 review of FCPA enforcement:

“So far, the FCPA Opinion Procedure has been used very little by the private sector to obtain DOJ advice on prospective transactions. […] The non-governmental participants in the on-site meetings cited several reasons for the infrequent use of the Opinion Procedure. For instance, legal and private sector representatives felt that the Opinion Procedure is only useful in limited situations where the prospective fact situation is narrow and not going to change. They also find that the response time, which is 30 days after the request is complete, is too long in certain situations, such as entering joint ventures and mergers and acquisitions, where a company normally needs to make decisions relatively quickly. […] The most pervasive concern of the private sector representatives was that availing themselves of the Opinion Procedure could expose them to potential enforcement actions by the DOJ, as well as provide competitors with information about their prospective international business activities.”

Moreover, a significant irony of the 11th Circuit’s resort to foreign characterization and treatment of a seemingly commercial enterprise is that the DOJ itself has rejected this approach in issuing opinions under the FCPA Opinion Procedure program.

For instance in Release 94-01 the Requestor disclosed that its “foreign attorney has advised that under the nation’s law, the individual [at issue] would not be regarded as either a government employee or a public official.”  However, the DOJ stated that “the foreign attorney’s opinion is not dispositive” and the DOJ “considered the foreign individual to be a ‘foreign official’ under the FCPA.”

Even the 11th Circuit noted that it will be a “difficult task – involving divining subjective intentions of a foreign sovereign, parsing history, and interpreting significant amounts of foreign law – to decide what functions a foreign government considers core and traditional.”  Moreover, the 11th Circuit recognized ”there may be entities near the definitional line for ‘instrumentality’ that may raise a vagueness concern.”

Yet, the end-result of the 11th Circuit’s decision is that “foreign official” – a key element of the FCPA – may mean 193 different things.

Some may be thinking that this entire post has been wasted ink because the meaning of “foreign official” matters only to those intent on engaging bribery. Such a position is off-base as the meaning of “foreign official” matters for a number of reasons as will be explored in a future post.

Potpourri

Monday, June 23rd, 2014

Today’s post is short on written words, but long on content.

Recently, I had the pleasure to again visit with Thomas Fox for his Foreign Corrupt Practices Act Compliance and Ethics Report.  In this episode I discuss:

  • The 11th Circuit’s recent “foreign official” ruling (see here, here, here and here for prior posts).  Among the issues discussed are my involvement in the “foreign official” challenges, what was not at issue in the 11th Circuit appeal and what was at issue, and the court’s flawed reasoning.
  • My new book “The Foreign Corrupt Practices Act in a New Era”) (see here and here for prior posts).
  • My FCPA Institute – a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  The inaugural FCPA Institute is July 16-17th in Milwaukee, WI.

During the past month, I also had the pleasure to conduct two webinars hosted by Hiperos (a leader in third party risk management).

The first webinar was titled “Understanding the Root Causes of FCPA Scrutiny and Enforcement” (see here to view the hour long event).  The webinar:

  • Highlights the fallacy that only “bad” and “unethical” companies are the subject of FCPA scrutiny and explores certain foreign business realities and conditions that often serve as the root causes of FCPA scrutiny and enforcement.
  • Discusses what 99% compliance means.
  • Uses the root causes of many FCPA enforcement actions to highlight how an essential component of FCPA compliance is understanding the boring, day-to-day aspects of a company’s business in foreign markets and targeting, through training and other compliance policies, the relatively low-level employees and others who engage in these day-to-day activities.

The second webinar was titled ““The Ripple Effect:  Understanding Financial and Business Consequences of FCPA Scrutiny and Enforcement” (see here to view the hour long event).  The webinar:

  • Highlights how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.
  • Discusses the “three buckets” of FCPA financial exposure:  (1) pre-enforcement action professional fees and expenses; (2) enforcement action settlement amounts: and (3) post-enforcement action professional fees and expenses and highlights how bucket #1 is typically (in many cases 3, 5, 10 or higher times the settlement amount) the greatest financial hit to companies the subject of FCPA scrutiny or enforcement.
  • Explores other negative financial consequences that often result from FCPA scrutiny or enforcement such as market capitalization, cost of capital, M&A activity, lost or delayed business opportunities, and FCPA-related litigation.
  • Shifts the FCPA conversation from being a purely legal issue to its more proper designation as a general business issue that needs to be on the radar screen of business managers and highlights how the FCPA’s many ripples instruct that business managers should view the importance of FCPA compliance more holistically and not merely through the narrow lens of actual enforcement actions.

Thank you for reading FCPA Professor every day.

With today’s post, you have the opportunity to hear me discuss FCPA, FCPA enforcement, and FCPA compliance issues for 2 hours and 30 minutes … should you so choose.

11th Circuit “Foreign Official” Decision – Perspective Including As To The Court’s Flawed Reasoning

Thursday, June 12th, 2014

Previous posts here, here, and here have highlighted various aspects of the 11th Circuit’s recent “foreign official” decision in U.S. v. Esquenazi (the first time in FCPA history that an appellate court has directly addressed the enforcement theory that employees of alleged state-owned or state-controlled enterprises can be “foreign officials” under the FCPA).

This post contains additional perspectives and highlights the 11th Circuit’s flawed reasoning.  For purposes of this post, knowledge of the court’s opinion and the facts and circumstances underlying the case are presumed.  As previously disclosed, I served as a pro-bono expert to the defendants’ pro bono counsel in the 11th Circuit appeal and was previously engaged as an expert by defense counsel in prior “foreign official” challenges.

For starters, it is important to understand what was not at issue in the 11th Circuit appeal and what was at issue.

What was not at issue is whether the FCPA should be a comprehensive anti-bribery statute such as the U.K. Bribery Act.  Congress could have passed a comprehensive anti-bribery statute in 1977 – as well as when the FCPA was amended in 1988 and 1998 – and could still pass a comprehensive anti-bribery statute today if it chooses.  However, it is undisputed that Congress has not done so and the FCPA’s anti-bribery provisions are qualified in many ways, including as pertinent to the 11th Circuit appeal, through the category of recipients of the alleged improper payments.

What was not at issue was whether the 11th Circuit’s decision would have any practical effect on corporate compliance programs. The bulk of commentary regarding the 11th Circuit decision has been written by law firms writing for corporate audiences and I agree that the 11th Circuit decision has little practical impact on corporate compliance programs because risk-adverse business organizations were already structuring compliance policies and procedures to the DOJ and SEC’s enforcement theory that employees of SOEs were “foreign officials.”  Such corporate positions were not evidence of the validity of the enforcement agency position for the same reason that the trending corporate position of eliminating facilitation payments is not evidence that the FCPA’s express facilitation payment exception is invalid.

Rather what was at issue in the 11th Circuit appeal was the basic and fundamental principle of ensuring – when the government marshals its full resources against individuals and deprives the individuals of their liberty – that each element of the charge alleged is being applied consistent with Congressional intent in enacting the statute.  After all, the DOJ and SEC should only enforce a law that Congress passed.

Notwithstanding what was at issue in the 11th Circuit appeal, some have suggested:

“For those who challenged the government’s legal interpretation of the term “instrumentality,” they need to pick and choose better places to challenge the FCPA and the government’s enforcement  program.”

Given what was at issue in the 11th Circuit appeal, as well as the other “foreign official” challenges, you will not find me apologizing one iota for my involvement in these cases or my “foreign official” declaration that partly served as a basis for the challenges.

Moreover, notwithstanding the 11th Circuit decision, let’s not forget the ultimate outcome of the other enforcement actions in which “foreign official” was challenged.

  • A federal court judge granted, at the close of the DOJ’s case, John O’Shea’s motion for acquittal and found him not guilty of all substantive FCPA charges.  In this post, O’Shea’s lawyers opine that the “foreign official” issue played a role in the ultimate outcome of the case.
  • In the Carson “foreign official” challenge, “foreign official” issues moved to the jury instructions and the judge issued a pro-defendant jury instruction concerning “knowledge of status of foreign official” (see here for the prior post).  Soon thereafter, the DOJ offered – what can only be described as lenient plea deals – that the risk adverse defendants accepted and the DOJ never had to prove its case.
  • In the Lindsey Manufacturing enforcement action, the judge ultimately dismissed (see here) the case after finding numerous instances of prosecutorial misconduct.  Although the prosecutorial misconduct was seemingly unconnected to “foreign official” issues, post-trial motions concerning, among other things, “foreign official” issues were pending at the time of dismissal.

One final big-picture point before highlighting the 11th Circuit’s flawed reasoning.

In the minds of some, the “foreign official” issue has now been “resolved” and “settled.”  To this, I respond:  can anyone name another instance in which a key element of an important law is deemed “resolved” or “settled” because of one appellate court decision?

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The 11th Circuit recognized that the plain meaning of the word “instrumentality” in the FCPA only provides a partial answer as to its plain meaning and thus the court turned to “other tools to decide what instrumentality means in the FCPA.”

However, the court’s decision lacks any discussion of two statutes – one passed before the FCPA (the Foreign Sovereign Immunities Act) and one passed after the FCPA (Dodd- Frank, Section 1504) that explicitly contain the term instrumentality as well as SOE concepts.

It is a basic maxim of statutory construction that all terms in a statute are presumed to have distinct meaning and the 11th Circuit itself stated ”it is a cardinal rule of statutory construction that significance and effect shall, if possible, be accorded to every word.”

However, the 11th Circuit dodged the salient question – if instrumentality was viewed by Congress to encompass SOEs, then why do statutes passed before the FCPA, as well as after the FCPA, explicitly contain the term instrumentality as well as SOE concepts?

If Congress believed the term “instrumentality” to encompass SOEs without an express definition saying so, then both FSIA and Dodd-Frank contain redundant terms which itself violates a basic maxim of statutory construction that statutes are presumed not to contain redundant terms.  Indeed, where a particular element is explicitly set out in one statute, but it is not likewise set out in the statute at issue, courts presume that Congress did not intend to include that element in the statue at issue.

*****

The court also examined the “broader statutory context” of the term “instrumentality” and examined the FCPA’s 1998 amendments and legislative history related thereto relevant to “foreign official.”  However, the court’s decision lacks any discussion of the FCPA’s enacting legislative history relevant to “foreign official” and thus violates another maxim of statutory construction that enacting legislative history governs the meaning of a statutory term, not subsequent legislative history.

Here, the 11th Circuit recognized that it was skating on thin ice when it stated as follows.  ”Although we generally are wary of relying too much on later legislative developments to decide a prior Congress’ legislative intent, the circumstances in this case cause us less concern in this regard.”  Indeed, the court even cited a Supreme Court decision stating that “the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.”

Nevertheless, the court stated as follows.

“This is not an instance in which Congress merely discussed previously enacted legislation and possible changes to it.  Rather, Congress did make a change to the FCPA, and it did specifically to ensure that the FCPA fulfilled the promise the United States made to other nations when it joined the [OECD] Convention.  The FCPA after those amendments is a different law, and we may consider Congress’s intent in passing those amendments as strongly suggestive of the meaning of ‘instrumentality’ as it exists today.”

The 11th Circuit’s rationale for consulting post-enactment legislative history, but not enacting legislative history, is not persuasive.  Perhaps most important, the 1998 FCPA amendment to “foreign official” did not even concern the “department, agency, or instrumentality” prong of the “foreign official” definition.  Rather the 1998 amendment to “foreign official” merely added those associated with “public international organizations” to the definition of “foreign official.”

As detailed in my “foreign official” declaration, the salient points from the FCPA’s enacting legislative history are as follows.

  • During its multi-year investigation of foreign corporate payments that preceded enactment of the FCPA, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities.
  • In certain of the competing bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOEs. These bills were introduced in both the Senate and the House during both the 94th (1975-76) and 95th (1977-78) Congresses.
  • An American Bar Association committee informed the Chair of the House subcommittee holding hearings on these bills that the definition of “foreign government” in these bills, specifically the portion of the definition referring to “a corporation or other legal entity established or owned by, and subject to control by, a foreign government” was “somewhat ambiguous.” The American Bar Association committee suggested a “more precise definition of this aspect of the definition of ‘foreign government’ and proposed the following language: “a legal entity which a foreign government owns or controls as though an owner.
  • Despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.

The above points have never been disputed in any of the “foreign official” challenges.

Rather, the DOJ argued that because SOEs were discussed during the legislative debate, Congress must therefore have intended to include SOEs in the definition of the “instrumentality” even though there is no explicit reference in the thousands of pages of legislative history for this position.  The logic of the DOJ’s position would mean that Congress must have intended, despite the lack of explicit reference in the thousands of pages of legislative history, to include commercial bribery within the scope of the FCPA because there was much reference during the legislative history to commercial bribery payments.

In short, the 11th Circuit’s reasoning was flawed because in consulting legislative history the court consulted the wrong legislative history.  The correct legislative history, the enacting legislative history, says what it says and the salient points from my “foreign official” declaration have never been disputed.

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The 11th Circuit’s reasoning is further flawed by the inference in the court’s opinion that the FCPA’s 1998 amendments fully conformed the FCPA to the OECD Convention and, because of this, the FCPA must include SOEs because the OECD Convention does.

This is plainly false.

For starters, and as detailed in my “foreign official” declaration, it is clear that Congress was informed and understood that the 1998 amendments would not fully conform the FCPA to the OECD Convention.  Rather, the OECD Convention was described as “closely modeling” the FCPA; being “very similar” to the FCPA; being “largely consistent” with the FCPA; and “closely tracking” the FCPA.

For this reason, the 11th Circuit’s statement that Congress amended the FCPA in 1998 to “implement[...] the Convention’s mandates” is false.

Indeed, this was previously recognized in U.S. v. Kay where both the trial court and appellate court rejected the DOJ’s position that the FCPA captured payments to secure an “improper advantage” because the OECD Convention captured such payments.

The trial court decision stated:

“The OECD Convention had asked Congress to criminalize payments made to foreign officials ‘‘ ‘in order to obtain or retain business or other improper advantage in the conduct of international business.’’ . . . Congress again declined to amend the ‘‘obtain or retain business’’ language in the FCPA . . . . Congress did not insert the ‘‘improper advantage’’ language into the ‘‘obtain or retain business’’ provision of the FCPA.”

Although the Fifth Circuit overruled the trial court’s decision granting the defendants’ motion to dismiss, the appellate court likewise stated as follows concerning the FCPA’s 1998 amendments:

“When Congress amended the language of the FCPA, however, rather than inserting ‘any improper advantage’ immediately following ‘obtaining or retaining business’ within the business nexus requirement (as does the Convention), it chose to add the ‘improper advantage’ provision to the original list of abuses of discretion in consideration for bribes that the statute proscribes.’’

Even thought the U.S. signed the OECD Convention, the Convention was not self-executing.  Rather the Convention encouraged parties to “take such measures as may be necessary to establish that it is a criminal offense under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official …”.

The notion that the FCPA changed in 1998, in the absence of specific implementing legislation as to specific elements, because of generic references to the OECD Convention is false and has previously been rejected by the Fifth Circuit.  In short, the OECD Convention was not self-executing and it is black letter law that if a treaty is not self executing it is not the treaty, but the implementing legislation, that is the law of the land.

Yet, the 11th Circuit suggested that because the ”only change to the definition of ‘foreign official’” in the 1998 amendments was to add “public international organizations,” that ”this seems to demonstrate that Congress considered its preexisting definition already to cover” employees of alleged SOEs.

For the reasons stated above in terms of the FCPA’s enacting legislative history, this suggestion is off-base and not supported by any explicit statement in the FCPA’s voluminous enacting legislative history.

The inference in the 11th Circuit’s decision is that the FCPA changed – presumably through a process of osmosis – because the U.S. signed the OECD Convention.  Taking the court’s rationale to its logical conclusion, does the FCPA no longer have an express facilitation payment exception because the Convention does not?  Does the FCPA no longer apply to payments made to political parties because the Convention does not?  Congress surely did not change through osmosis the scope and meaning of the FCPA on these issues despite its generic references to the Convention in the 1998 amendments.

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Throughout the “foreign official” challenges, the DOJ advanced the argument that a decision contrary its position (i.e. that employees of SOEs are not “foreign officials”) would result in the U.S. being out of compliance with its OECD Convention obligations.

This has been a red-herring argument all along.  Another another U.S. law, the Travel Act, which the DOJ has often used in connection with FCPA enforcement actions, can capture payments outside the context of “foreign officials” and is capable of capturing payments to SOE officials as contemplated by the OECD Convention.

Moreover, the DOJ’s position ignores the fact that courts in other OECD Convention countries have concluded that employees of alleged SOEs are not “foreign officials.”  (See here for a previous guest post regarding the issue in Korea).

Nevertheless, the 11th Circuit accepted the DOJ’s red herring argument and incorrectly concluded that it was “constrained to interpret ‘instrumentality’ under the FCPA so as to reach the types of officials the United States agreed to stop domestic interests from bribing when it ratified the OECD Convention.”  Elsewhere, the court stated that to interpret instrumentality to exclude SOEs “would put the United States out of compliance with its international obligations.”

Neither statement is true.